The chief of the European Central Bank (ECB), Mario Draghi, has reacted skeptically about the compromise on the banking union, which is being promoted by Germany. Mr. Draghi said he was afraid that the common banking union might be “common” just in its name. In order to prevent this scenario, he spoke about the need to establish a strong and credible resolution mechanism at the European Parliament’s Economic Affairs Committee on 16 December.
The new framework, according to Draghi, should then be, “a single system, a single authority and a single fund” should define a successful banking union. The ECB chairman is also worried about the decision-making procedures within the union which might be susceptible to becoming too complex. In his opinion, everybody does know that decisions regarding the banking system must be taken all the time, and one cannot deal with crowds of people debating whether a bank is viable or not.
EU finance ministers are going to meet in Brussels by the end of this week with the aim to discuss and possibly complete an agreement on a common resolution mechanism that would deal with insolvent banks. As for now, governments will have to found bank-funded national resolution funds in the coming ten years to cover the costs of bank failure. It is estimated that about €60 billion will be needed. Yet, it remains unclear what would happen if a bank‘s failure could not be paid by the resolution fund.
Germany has vividly expressed its disagreement about the current design of a single resolution fund out of fear that, as the eurozone’s biggest member state, its taxpayers would be forced to hold liability over the debts of all banks from the eurozone. The latest compromise, which was drafted by the Lithuanian presidency, proposed to establish an inter-governmental deal to decide whether countries were granted access to other members’ funds during the first ten years of the system.
